An increasing gasoline price elasticity in the United States?

• Published in: Energy economics Vol. 95; p. 104982
• Main Authors: Goetzke, Frank, Vance, Colin
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier B.V 01.03.2021; Elsevier Science Ltd
• Subjects: Energy economics; Estimates; Estimation; Fuel price elasticity; Fuels; Gasoline; Heterogeneity; Households; Price elasticity; Prices; Robustness; Taxation; Vehicle miles traveled; United States > US; Heterogeneity; Vehicle miles traveled; D12; Fuel price elasticity; R48; Q41
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2020.104982

Drawing on the 2009 and 2017 waves of the National Household Transportation Survey, this paper is concerned with modeling the fuel price elasticity, allowing for differential estimates in its magnitude over time and across households. We find an elasticity close to zero for the year 2009, which increases to upwards of −0.3 by the year 2017. We explore the robustness of this result to different model specifications and estimation techniques, including instrumental variable estimation to account for the possible endogeneity of fuel prices, as well as quantile regression to account for heterogeneity according to driving intensity. While a similar pattern of increasing elasticity over time emerges across all these models, the quantile model suggests an inverse relationship between the magnitude of the elasticity and miles driven in 2017. As demonstrated with a back of the envelope calculation, one implication of this pattern is a more muted effectiveness of fuel taxation than implied by the estimates of a standard mean regression. •We estimate the fuel price elasticity using the 2009 and 2017 waves of the NHTS.•The elasticity in 2009 is small – roughly −0.05 – but imprecisely estimated.•The elasticity in 2017 is statistically significant and larger in magnitude, −0.29.•The 2017 elasticity is further subject to heterogeneity by driving distance.•Those who drive the most are the least responsive to fuel prices.